House Releases Initial Draft of Omnibus Tax Bill

The bill includes the provisions in the property tax division report as well as articles on income, sales, and other taxes.
(Published Apr 20, 2015)

The House Taxes Committee released the initial draft of a delete-all amendment to HF 848 on April 18. This bill will become the House version of the 2015 omnibus tax bill. In addition to including provisions from the Property Tax and Local Government Finance Division report, the broader bill includes income tax, economic development, estate tax, and sales tax provisions.

The House Taxes Committee will hold hearings on the bill, beginning with an overview of the legislation and public testimony on April 20. A second hearing is likely to be scheduled for April 21 to consider amendments to the bill. The following is a summary of provisions that will affect cities.

Economic development

  • Workforce housing. The bill includes a version of the League-supported workforce housing tax increment financing (TIF) authority for cities located outside the Twin Cities metropolitan area. To qualify for the authority, a city must meet the following requirements: an average vacancy rate for rental housing in that city or any other city within 15 miles that is 3 percent or less for at least the last two years; a business in the city or within 15 miles of the city that employs 20 or more full-time equivalent employees must provide a written statement that the lack of available rental housing has made it difficult to hire employees; and intention of the city to use increments to develop workforce housing.
  • Housing TIF district. A provision is included that allows the higher income limits under the Minnesota Housing Finance Agency (MHFA) Housing Challenge Program to be used for housing TIF districts, if the project receives an MHFA grant or loan. Similarly, if the project receives a grant from the Department of Employment and Economic Development for workforce housing, the income limits under the grant, if any, would apply instead of the limits under the TIF statute.

Sales and use taxes

  • Exemption for construction materials. The bill includes the League-supported sales tax exemption simplification for purchases of construction materials made by a contractor, subcontractor, or builder under a lump sum contract for buildings and facilities used directly by local governments. Under the exemption, the contractor, subcontractor, or builder must pay the sales tax at the time the materials are purchased, and the owner of the facility must apply to the Minnesota Department of Revenue for the refund. Effective for sales and purchases made after June 30, 2015.
  • Exemption for Mora project. The bill provides a sales tax exemption for construction materials, supplies and equipment used in the municipally owned wastewater treatment facility in the city of Mora. Exempt materials must be purchased between Jan. 1, 2015 (before the effective date of the general exemption above) and Jan. 1, 2017. The exemption applies to purchases by the city, or a contractor, subcontractor, or builder; however the tax must be paid at the time of the purchase of the materials, and the city must apply for the refund. Money is appropriated from the general fund to pay the refund.
  • Exemption for sales at city celebration. A provision is included that provides a sales tax exemption for sales at and admissions to a city designated annual celebration to promote community spirit. To qualify for the exemption the following conditions must be met:
    • City population of less than 10,000.
    • City celebration must last no more than five consecutive days.
    • The event must be run by the city or a non-profit organization designated by the city.
    • All receipts from the event are accounted for by the city or nonprofit.
    • The entire proceeds, minus expenses, must go to the city, or one or more 501( c )(3) or 501( c )(4) organizations and used strictly for charitable, educational, civic, or governmental purposes.
    The exemption does not apply to events involving bingo or gambling activities, and all sales become taxable if the requirements listed above are not met. Effective for sales after June 30, 2015.
  • Exemption for improvement of existing resort/camp structure. The bill would allow an exemption for purchases of construction materials and supplies and equipment incorporated in the improvement of an existing structure at a resort or a private or public campground. The structure may be a cabin or any other structure for use by the resort guests or the campers. The exemption does not apply to construction of new buildings. This would apply to materials regardless of whether purchased by the resort or campground owner or a contractor, subcontractor, or builder. Effective for sales and purchases made after June 30, 2015

Revenue dedication

  • Motor vehicle lease sales tax. The bill includes a dedication of motor vehicle lease sales tax revenue, starting in fiscal year (FY) 2017, so that 50 percent of the funds are deposited into a transit allocation account in the newly created Transportation Stability Fund, and 50 percent deposited into a county highway allocation account, also being created in the Transportation Stability Fund.
  • Motor vehicle rental general sales tax. The bill also requires that revenue from the state’s general sales tax (of 6.5 percent) on short-term motor vehicle rentals be deposited into an account for small cities aid in the Transportation Stability Fund.
  • Motor vehicle rental additional sales tax. A requirement is included that revenue from the additional sales tax (of 9.2 percent) on short-term motor vehicle rentals be deposited into an account for metropolitan transit capital projects in the Transportation Stability Fund.
  • Motor vehicle parts sales tax. The bill includes a requirement that the estimated amount of sales tax revenue collected on the sale and purchase of motor vehicle repair parts be deposited monthly directly to an account for highway funding in the Transportation Stability Fund.

Miscellaneous

  • Financial report. The bill authorizes the state auditor to arrange for preparation of financial reports for a county, city, or township that doesn’t file reports on a timely basis. The state auditor may charge the local government 105 percent of the cost of the service, up to the local government’s aid amount. The bill also allows the state auditor to delay or waive reporting requirements in the case of a disaster or emergency. This section is related to the local government aid (LGA) penalty forgiveness provisions below.
  • Penalty waiver for Oslo. A provision is included that waives the LGA penalty for the city of Oslo, provided that the state auditor certifies that the city filed its 2012 financial reports by Dec. 31, 2013.
  • Penalty waiver for any city. A provision is included that waives the 2014 LGA penalty for any city that lost all or part of its calendar year 2014 LGA payment as a penalty for not filing its calendar year 2013 financial reports with the legislative auditor in a timely fashion. The penalty is only forgiven if the city has filed both its calendar year 2013 and 2014 financial statements with the auditor by June 1, 2015. There are three cities that are known to qualify for this waiver: Woodstock, Jeffers, and Dundee.

The League will provide more information on the House omnibus tax bill after the bill is processed by the House Taxes Committee this week.

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